Day in Court for Bid to End WorldCom's Bankruptcy

Monday, September 8, 2003

By Barnaby J. Feder

New York Times Business Writer

"We think this is a showstopper," said Mr. Weisfelner, who has filed a motion asking Judge Gonzalez to reach a summary judgment that the plan is unfair before the trial. Mr. Weisfelner said that decisions in previous cases have created a precedent requiring WorldCom to show that the accounts of the various entities were so commingled that the result is "hopeless obscurity."

WorldCom says it has met the standards to consolidate its assets. Every class of creditors entitled to vote on its plan has supported it, the company said. (Groups getting nothing are automatically assumed to oppose the plan.)

Creditors who voted in favor control more than 95 percent of the debt in the voting groups, WorldCom said. The objections of many creditors have been satisfied in one-on-one negotiations over the specifics of their claims, which will continue through the trial, Alfredo Perez, a lawyer for WorldCom, said.

NYT
Has WorldCom devised an acceptable plan to emerge from the largest bankruptcy on record as a healthy competitor in the struggling telecommunications industry?

To the dismay of competitors who want the company liquidated, most of its creditors have voted yes.

Now the spotlight shifts to the man whose views on that subject count most, Judge Arthur J. Gonzalez of the United States Bankruptcy Court in Manhattan.

Starting today, he will preside over a trial of the evidence and arguments for and against WorldCom's reorganization plan. He will conduct the trial, technically known as a confirmation hearing, before what is expected to be a standing-room-only crowd of lawyers, creditors and expert witnesses in the government's largest Manhattan courtroom. It is expected to last at least two weeks.

"The size of the case is breathtaking and there are some unique constituencies," said H. Jason Gold, a lawyer whose firm, Wiley Rein & Fielding, represents more than 20 telephone companies and governmental authorities that have claims affected by the reorganization plan.

If Judge Gonzalez concludes that WorldCom has met its burden of showing that the plan is fair and feasible, that will remove the last major roadblock to ridding the company of more than $30 billion in debt. The plan calls for WorldCom, which recently moved its headquarters to Ashburn, Va., from Clinton, Miss., to be reborn under the name MCI, the telephone operation that is its largest subsidiary.

The new MCI includes a broad portfolio of assets assembled but never integrated during Bernard J. Ebbers' acquisition binge, including a global Internet network, Web hosting services and data communication services for business. The process of financial reorganization could be completed within weeks if the plan is approved.

WorldCom's reorganization would virtually wipe out the investment of the shareholders, as is common in many bankruptcies, and force many secured creditors to take some of their reimbursement as newly issued stock.

Under the plan, the new MCI would also issue them $4.5 billion to $5.5 billion in new notes, leaving the company with total short- and long-term liabilities of $12.61 billion, down from $43.72 billion before reorganization.

Most analysts and legal experts are betting that the plan will be approved, although not without modifications. But with billions of dollars at stake, the trial is expected to be grueling and intense.
(More: NYTimes.com)

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Dan